Expensive Prescription Drugs Are a Bargain

The Inflation Reduction Act gives the government the ability to ‘negotiate’ prices. People will die.

By Charles L. Hooper and David R. Henderson. Excerpts:

"We’ve all heard that Americans pay higher drug prices than people in other countries. That’s true, but only when comparing retail prices of brand-name drugs. Very few Americans pay retail prices; most pay a fraction—a copay dictated by their insurance plan. Most country-to-country comparisons also leave out generics. Nine of 10 prescriptions in the U.S. are filled with generic drugs priced lower than in most other countries."

"Except in rare cases, pharmaceutical companies develop drugs for the U.S. market. For drugs that make it in America, potential sales in Europe, Japan, Canada, China and elsewhere are gravy. Drugs that can’t make it in the U.S. are scuttled. Probable success in America is a necessary and sufficient condition for the development of new drugs. There are four main reasons for this:

First, the U.S. is a relatively large country. Second, the U.S. is a wealthy country; Americans are 46% richer than the British, 59% richer than the French, and 36% richer than the Germans as measured by per capita gross domestic product. Third, negotiating prices with government bureaucrats takes time, resulting in one to two years of lost sales. Fourth, prices in the U.S. are somewhat more influenced by market forces and, until the Inflation Reduction Act, weren’t determined by negotiations with the government."

"If a drug company doesn’t accept the CMS price, it will be taxed up to 95% on its Medicare sales revenue for that drug."

"Drug research and development involves enormous fixed costs. As of 2013, the cost per new drug approved by the Food and Drug Administration was $2.9 billion. Historically, these fixed costs have doubled in real terms every nine years. So in 2022, the inflation-adjusted fixed cost per approved drug is close to $7 billion."

"Without wealthy American consumers and insurers who pay retail or close to it for brand-name drugs, some drugs won’t be developed at all."

"73% of the increase in life expectancy that high-income countries experienced between 2006 and 2016 was due solely to the adoption of modern drugs."

"the pharmaceutical expenditure per life-year saved was $13,904 across 26 high-income countries and $35,817 in the U.S. Most Americans would pay $36,000 to live an extra year."